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treasury laws amendment (taxation and superannuation guarantee integrity measures) bill 2018
EXPOSURE DRAFT EXPLANATORY MATERIAL
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Table of contents
Glossary
Chapter 1Directions and penalties in relation to superannuation guarantee charge
Chapter 2Disclosure of information about noncompliance
Chapter 3Single touch payroll reporting
Chapter 4Fund reporting
Chapter 5Compliance measures
Chapter 6Amendments relating to employee commencement
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Glossary
The following abbreviations and acronyms are used throughout this explanatory memorandum.
Abbreviation / DefinitionAPRA / Australian Prudential Regulation Authority
Commissioner / Commissioner of Taxation
ITAA 1936 / Income Tax Assessment Act 1936
PAYG / Pay asyougo
SGAA 1992 / Superannuation Guarantee (Administration) Act 1992
SISA 1993 / Superannuation Industry (Supervision) Act 1993
SUMLMA / Superannuation (Unclaimed Money and Lost Members) Act 1999
TAA 1953 / Taxation Administration Act 1953
1
Directions and penalties in relation to superannuation guarantee charge
Chapter 1
Directions and penalties in relation to superannuation guarantee charge
Outline of chapter
1.1Schedule 1 amends the TAA 1953 to allow the Commissioner to issue directions to an employer who fails to comply with their obligations under the SGAA 1992 or an obligation under the TAA 1953 as it relates to the SGAA 1992 (superannuation guarantee obligations).
1.2The Commissioner can direct anemployer to undertake an approved course relating to their superannuation guarantee obligations where the Commissioner reasonably believes there has been a failure by the employer to comply with theirsuperannuation guarantee obligations.
1.3The Commissioner can also direct an employer to pay unpaid and overdue superannuation guarantee charge liabilities. This is to address recalcitrant employers who intentionally and repeatedly disregard their obligations and continuously fail to pay their superannuation liabilities.
1.4The purpose of these amendments is to enhance compliance with superannuation guarantee by employers.
1.5All legislative references in this Chapter are to the TAA 1953 unless otherwise stated.
Context of amendments
1.6The Superannuation Guarantee Cross-Agency Working Group was established in December 2016 to report on the operation, administration and extent of non-compliance in the superannuation guarantee system in Australia.
1.7In March 2017, the Superannuation Guarantee Cross-Agency Working Group released its final report, which contained its final recommendations on options to improve superannuation guarantee compliance.
1.8These amendmentsare one of several measures announced as part of the Government’s package of reforms to strengthen compliance with superannuation guarantee obligations by employers. The amendmentsare based on recommendation 6 contained in the Superannuation Guarantee Cross-Agency Working Group’s report.
1.9The SGAA 1992 sets out the circumstances in which an employer is liable to the superannuation guarantee charge and the obligations they have in respect of the charge. There are no provisions in the SGAA 1992 that place an obligation on an employer to make contributions on behalf of their employees.
1.10The superannuation guarantee rules are designed to ensure that employees have at least a minimum level of superannuation support through contributions provided by their employer in respect of their employment. The rules achieve this by imposing a tax (the superannuation guarantee charge) on employers who fail to contribute an amount at least equivalent totheminimum percentage of their employee’s ordinary time earnings into superannuation. Employers can reduce the amount of superannuation guarantee charge payable by making contributions to their employee’s superannuation fund of choice before the quarterly due date (the 28th day after the end of the quarter). If the minimum level of superannuation contribution is made in respect of the individual employee, then the superannuation guarantee charge is reduced to nil.
1.11The superannuation guarantee charge is a tax related liability under Subdivision 255-A in Schedule 1, and once due and payable, becomes a debt due to the Commonwealth. Part 4-15 in Schedule 1 deals with the collection and recovery of tax related liabilities.
1.12Currently, the failure to comply with a superannuation guarantee obligation under the SGAA 1992 can result in financial penalties for the employer. An employer who fails to lodge the superannuation guarantee statement on time is liable to pay additional superannuation guarantee charge (known as the ‘Part 7 penalty’) which can be up to 200 percent of the amount of the underlying superannuation guarantee charge. General interest charge is also imposed for late payments once asuperannuation guarantee assessment has been made.
1.13The TAA 1953 also imposes administrative penalties (for example in relation to false and misleading statements in relation to a superannuation guarantee statement under Division 284 in Schedule 1) and contains offences for failing to comply with tax related obligations.
1.14An employer’s failure to comply with their superannuation guarantee obligations can occur for a variety of reasons. In particular, smaller employers may not be fully aware of their superannuation guarantee obligations under the SGAA 1992. Employers may also misclassify payments which results in an underpayment of superannuation guarantee.
1.15In other cases, there arerecalcitrant employers who have intentionally failed to provide their employees with their superannuation guarantee entitlements and repeatedly disregardedtheir obligations and continuously failed to pay their superannuation liabilities.
Summary of new law
1.16The amendments empower the Commissioner to issue directions to employers to undertake specific actions where the Commissioner is satisfied that there has been a failure to comply with an obligation or a failure to pay a charge. These directions are designed to enhance employer compliance with their superannuation guarantee obligations.
1.17The key features of the education direction are as follows:
•The Commissioner can issue a direction to an employer if the Commissioner reasonably believes the employer has failed to comply with a superannuation obligation.
•The person who has received the directionmust complete the approved course and provide proof of completion to the Commissioner.
•Failure to comply with the direction can result in administrative and/or criminal penalties.
1.18The key features of the direction to paysuperannuation guarantee charge are as follows:
•The Commissioner can issue a direction to an employer if the employer has failed to pay an amount of superannuation guarantee charge, or an estimate of superannuation guarantee charge, for a quarter.
•The employer must ensure that the amount of the unpaid liability is paid within the period specified in the direction.
•Failure to comply with the direction can result in criminal penalties.
Comparison of key features of new law and current law
New law / Current lawThe Commissioner can issuea direction to an employer to undertake an approved course where that employer has failed to comply with their superannuation guarantee obligations under the SGAA 1992 or their obligations under the TAA 1953 as it relates to the SGAA 1992. / No equivalent.
The Commissioner can issue a direction to an employer to pay an outstanding superannuation guarantee liability or an estimate of the liability. / No equivalent.
Detailed explanation of new law
1.19The amendmentsinserta new Division 295in Schedule 1 to the TAA1953 which provides the Commissioner with the power to issue a direction toan individualto complete an approved course. Such directions can be issuedwhere the Commissioner reasonably believesthat there has been a failure by an employer to comply with a superannuation guaranteeobligation.
1.20The amendments alsoinsert a new Division 296 in Schedule 1 to the TAA1953 which provides the Commissioner with the power to issue a direction to an entity to pay an unpaid and overdue superannuation guarantee liability.
Education directions
1.21The Commissioner can issue a written direction to an employer if the Commissioner reasonably believes that the employer has failed to comply with an obligation under the SGAA 1992 or anobligation under the TAA 1953 as it relates to the SGAA 1992. The direction must direct an employer to undertake an approved course of education and provide the Commissioner with evidence of completion of the course.[Schedule1, item 3, subsection 295-10(2) in Schedule 1 to the TAA1953]
1.22It is appropriate for the Commissioner to have the discretion to issue an education direction to an employer wherethe employer’slack of knowledge or understanding of their obligations has contributed to a failure to comply with their obligations under the SGAA 1992 or the TAA1953.
1.23The purpose of the Commissioner issuing directions to employers to undertake an approved course is to address knowledge gaps and reduce future cases of non-compliance through employers gaining a better understanding about their ongoing superannuation obligations and liabilities.
Failure to comply with obligations under the SGAA 1992 or the TAA1953
1.24There is no obligation in the SGAA 1992 for employers to make superannuation contributions on behalf of employees. This is usually governed by the employment arrangements (e.g. enterprise agreements or awards). However if the minimum superannuation guarantee contribution is not made by an employer for a quarter, they are liable to pay the superannuation guarantee charge equal to the total of the amount of the superannuation guarantee shortfalls, nominal interest and administrative components for the quarter.
1.25The Commissioner must have reasonable belief that the employer has failed to comply with an obligation under the SGAA 1992 or the TAA 1953. The meaning of ‘employer’ adopts the same meaning from the definition contained in the SGAA. [Schedule 1, item 3, paragraph29510(1)(a)in Schedule 1 to the TAA1953]
1.26The Commissioner must have evidence of the employer’s failure to comply with the superannuation guarantee obligation. The level of evidence does not need to amount to an actual failure to comply with an obligation by an employer. However, the Commissioner must be able to reasonably conclude that there has been a failure to comply withone of the following obligations:
•Failing to pay the amount ofsuperannuation guarantee charge that is payable (section 16 of the SGAA1992). This includes failing to pay any superannuation guarantee charge arising from a default assessment (section 36 of the SGAA1992) [Schedule 1, item 3, subparagraph 295-10(1)(a)(i)in Schedule 1 to the TAA1953]
•Failing to lodge a superannuation guarantee statement for the quarter on or before the ‘lodgement day’, being the 28th day of the second month after the quarter end (section 33 of the SGAA 1992)[Schedule 1, item 3, subparagraph 295-10(1)(a)(ii)in Schedule 1 to the TAA1953]
•Failing to provide the Commissioner with any information that is requested (section 34 of the SGAA 1992)[Schedule 1, item 3, subparagraph 295-10(1)(a)(ii)in Schedule 1 to the TAA1953]
•Failing to comply with an obligation to keep records as required under the SGAA 1992 (section 79 of the SGAA) [Schedule 1, item 3, subparagraph 295-10(1)(a)(iii)in Schedule 1 to the TAA1953]
•Failing to pay a liability arising from an estimate the Commissioner makes of an unpaid superannuation guarantee charge by the time it is due and payable (subsection 26820(1)(b)in Schedule 1)[Schedule 1, item 3, subparagraph295-10(1)(a)(iv)in Schedule 1 to the TAA1953]
•Failing to comply with any other obligation under the TAA1953 that relates to the SGAA 1992[Schedule 1, item 3, subparagraph 295-10(1)(a)(v)in Schedule 1 to the TAA1953]
Example 1.1– failure to comply with an obligation under the SGAA 1992 by an individual
Chloe is a sole trader who owns and operates her own business making and supplying wholesale jewellery. Chloe has three wage earning employees, Christine, Jo and Mike. As an employer, Chloe has failed to pay superannuation contributions for all of her employees for four quarters in the 30 June 2017 year and therefore has foursuperannuation guarantee shortfalls. Chloe lodges her superannuation guarantee statements for one of the four quarters and only pays the superannuation guarantee charge for thatquarter.
Chloe, as an employer, has failed to comply with her obligations in her failure to lodge a superannuation guarantee statement for three quarters (under section 33 of the SGAA 1992)and her failure to pay the superannuation guarantee charge liability for thosequarters (under section 49 of the SGAA 1992).
Example 1.2– failure to comply with a relatedobligation under the TAA 1953
Chloe is a sole trader who makes and supplies expensive jewellery. She has been operating her business for four years. Chloe has failed to pay superannuation guarantee contributions for all three of her employees.The Commissioner is aware that Chloe has not lodged any superannuation guarantee statements for any of the quarters.
The Commissioner issues a notice pursuant to Division 268 of estimates for the superannuation guarantee charge payable by Chloe for the quarters in the four years that she has been operating. After being given the notice of estimate, Chloe fails to engage with the Commissioner and does not discharge any of the estimated superannuation guarantee charge liabilities.
Chloe has failed to comply with the company’s obligations under the TAA 1953 by failing to pay the estimates of superannuation guarantee charges for those quarters.
Requirements of the direction
1.27If an employer has failed to comply with its obligations under the SGAA 1992 or related obligations under the TAA 1953, the Commissioner may issue a written direction to a person associated with employer requiring them to undertake a specified approved course of education provided by the Commissioner or another entity. [Schedule 1, item3, section 295-15 in Schedule1 to the TAA1953]
1.28The written education direction must specify the period within which the personmust comply with the direction. The period specified must be a timeframe which is reasonable based onthe circumstances of the employer.[Schedule 1, item 3, subsection 295-10(3) in Schedule 1 to the TAA1953]
1.29The amendments make it clear that an education direction given by the Commissioner is not a legislative instrument within themeaning of section 8 of the Legislation Act 2003. [Schedule 1, item3, subsection29510(6) in Schedule 1 to the TAA1953]
Who can complete the education direction?
1.30Depending on the type of employer who has failed to comply with the superannuation obligation,the amendments contain a list of particular individuals who can be issued with a direction by virtue of their association with the employer. This includes a sole trader and a director in a company. [Schedule 1, item 3, paragraph 295-10(1)(b) in Schedule 1 to the TAA1953]
1.31The provision also allows the Commissioner to issue the direction to a person who makes or participates in making decisions that affect the whole or a substantial part of the business of the employer. This captures any person who is in an executive decision making position of any type of employer. [Schedule 1, item 3, subparagraph 295-10(1)(b)(v) in Schedule 1 to the TAA1953]
Requirements of employer arising from the direction
1.32An employer must comply with the direction before the end of the specified period provided on the written direction. The employer must also ensure that they or someone else on their behalf provides the Commissioner with evidence of completion of the course.[Schedule 1, item3, subsections 295-10(2) and (4) in Schedule 1 to the TAA1953]
Consequences of not complying with the direction
1.33An employer who fails to comply with the direction within the specified time period is liable to an administrative penalty of 5 penalty units. [Schedule 1, item 3, subsection 295-10(5) in Schedule 1 to the TAA1953]
1.34An employer who has completed the approved course but fails to provide evidence of completion of the course has failed to comply with the direction and is liable to an administrative penalty. This administrative penalty is automatically imposed but can be remitted by the Commissioner.
1.35The amendments also list a failure to comply with an education direction as an additional circumstance in which a person commits an offence under section 8C.[Schedule 1, item 1, paragraph8C(1)(fa))]
1.36Section 8C applies to failures to comply with certain requirements that are imposed under or pursuant to a taxation law. These currently include requirements to provide information to the Commissioner or another person, to notify the Commissioner or another person of a particular matter or thing, and to attend before the Commissioner or another person.
1.37The offence in section 8C is an offence of absolute liability. However, subsection 8C(1B)provides a defence for persons who are unable to comply with the relevant requirement.
1.38Tiered penalties apply to offences under section 8C. These penalties are provided for by section 8E and apply different penalties to first, second, and third or subsequent offences.A person who commits a first offence is liable to a fineof up to 20 penalty units, is liable to a fineof up to 40 penalty units for a second offence, and is liable to a fineof up to 50 penalty units and/or imprisonment of 12 months for a third or subsequent offence.
1.39Adding compliance with an education direction to the circumstances specified in section 8C means that a failure to comply with such a direction is an offence of absolute liability.This means that it is not necessary to establish fault if an employer has failed to comply with the written direction before the end of the specified period.
1.40Extending the existing offence of absolute liability and the tiered penalties in section 8E to failuresto comply with an education direction is appropriate as it maintains consistency with the other failures that are already covered by section 8C. All of the circumstances relate to requirements that are imposed under the taxation law to take particular actions and a failure to comply with an education direction is directly comparable to the existing requirements to notify the Commissioner of particular matters or attend before the Commissioner or another person.
1.41The existing defence for being unable to comply with a requirement also applies to failures to comply with an education direction, meaning that an employer who is genuinely incapable of complying with the direction will not commit an offence.
1.42Applying the existing section 8C penalty framework to education directions ensures that the consequences of not complying with a direction are consistent with the existing framework for other failures. The existing penalties will assist in ensuring that employers who have already failed to comply with their obligations under the SGAA 1992 and the TAA 1953 face appropriate sanction for not fulfillingthe further obligation under the TAA 1953 in respect of education courses.
Approval of course
1.43The Commissioner may, in writing, approve one or more courses of education for the purpose of the education direction. A course that is approved by the Commissioner may be provided by the Commissioner or another entity. [Schedule 1, item 3, subsections29515(1)and(2)in Schedule 1 to the TAA1953]
1.44The amendments make it clear that an approval of acourse given by the Commissioner is not a legislative instrument within themeaning of section 8 of the Legislation Act 2003.[Schedule 1, item3, subsection 295-15(3) in Schedule 1 to the TAA1953]
Course fees
1.45An entity providing an approved course of education may charge fees for the course.[Schedule 1, item 3, subsection29520(1) in Schedule 1 to the TAA1953]
1.46Any fees that are charged must not amount to taxation. [Schedule1, item 3, subsection 295-20(2) in Schedule 1 to the TAA1953]
1.47An entity has the discretion whether to choose to charge fees for the approved course or not. For providerswho do charge fees, it is appropriate that thefees remunerate the course providers for facilitating the education courses. The amendments ensure that the course fees do not amount to taxation by imposing an obligation on service providers to ensure that the course fees they set must not amount to taxation. This is because the Constitution requires that taxes be imposed in separate legislation.